The Business of Algae and the Dream of Algae

October 1, 2015 |

algae-summit-2Sapphire’s Jamie Levine, Matrix Genetics’ Margaret McCormick, Algal Scientific’s Geoff Horst, Heliae’s Len Smith and USCD’s Steve Mayfield reflect on the commercial progress of algae.

There is the dream of algae. All that photosynthetic productivity, all those products that algae can make, all those crushing needs that our society has for more, more, more — fuels, feed, food, pharmaceuticals, nutritionals, and materials.

The dream of algae is most intently dreamed in the world of energy, because the pangs of energy security or lack thereof are felt by so many societies that have CO2 and water to spare, and disabled land to build upon. And where energy security is not a concern, there is the thump-thump-thump of greenhouse gas emissions and climate change, and algae can provide fuels that have 70% lower greenhouse gas emissions. But even climate skeptics can get excited about bioeconomy jobs for rural economies, where the prospect of algae fuels brings with it the promise of economic growth and diversification for small towns.

We have dreamed the algae dream for so long that it feels strange to watch companies like LanzaTech, Joule Unlimited and Algenol all discussing groundbreaking a first commercial-scale plant in no more than 18 months, and in the case of LanzaTech, less than one month. All of them are chasing fuels and in the case of Joule and Algenol have been highly specific in discussing results that show them competitive with low-cost crude oil.

Algae purists might sniff and say “they’re all cyanobacteria technologies, not true algae.”

But I suppose that’s like refusing help from Superman on the grounds that he’s not a true-blue Earthling. Cyanobacteria are blue-green algae and commercial-scale from any of the three, much less all three soon, will be a welcome sign and a landmark event in the history of transportation that would just about rival the invention of the wheel.

But that is the dream of algae. Those companies have robust pilots and demonstrations running, but they are not yet at commercial scale with steady-state operations.  And they represent a narrow slice of algae-based technologies. Others, like Solazyme have reached commercial-scale operations, are selling product every-day to blue-chip companies, but they have not reached fuel-grade economics.

The Long and Winding Road down the Cost Curve

In the path down the cost curve from perfume economics, to health-and-beauty economics, and on to everyday triglyceride oil economics for non-exotic products, and on to products such as foods, fish meal, animal feed and ultimately fuels, a large number of companies have paused somewhere around health-and-beauty – in Solazyme’s case, a little further and into the world of commercial triglyceride oils for everyday applications like drilling fluids and foods. Many are still working at sky-high costs where only a handful of markets are open to them. But they’ve found that algae competes well, there.

For a lack of capital, a need to do business soon with a winning first product, or simply a yield wall they have not been able to overcome, there’s quite a pile-up of algae companies somewhere past perfumery and short of animal feed. Creating a log-jam in markets such as astaxanthin that at times feels as if the Rolling Stones have announced the opening of ticket sales for a last farewell to rock-and-roll tour and the whole world has turned out to get a seat.

The Three-Word Directive

“Now, Now, NOW.” You can hear the whump of the hand slap on the table as the venture-backers give their three-word summary. That is, the expected timing for their companies to get out of the Land of Pre-Revenue and into the Land of Massive-profits-that-help-me-raise-my-next-LP-fund.

Some backers have different versions of the three-word directive.

Sometimes, it is “now or never”, or, “now or else”, or “Now, pretty please” or “Now’d be nice” or “Now, me hearties”.

There are those who keep Government time measured in 4-year cycles, or public company time measured in quarters, or media time measured in 24-hour news-cycles. And then there is this generation of algae companies who are measured these days in increments of Now, and their index is the Now Jones.

Ready, aim, fire or the popular alternatives

Ready or not, here they come. Some more ready than others. Some did “aim, fire, ready” in the past. Some of them tried “fire!” and there wasn’t so much aim or ready.

Some just tried “ready, aim, ready, aim, ready, aim” and never seem to “fire”. Except the occasional CEO.

Some of them have turned up with recently re-patched business plans and a “Directive from the Board” to sell something, baby. Some of them who aimed at the ultra-high end of the market from the very beginning, like Bentley or Lamborghini did. Some of them are in pretty good shape, some look like the last rat on the last ship in the last hour before Judgment Day. But most of them were in Washington this week at the annual Algae Biomass Organization’s annual get-together, which as close as you will come to a meeting of The Clan, or The Summit, or the Rat Pack of algae.

Mayfield, Levine, SMith, McCormick and Horst on stage at the 2015 Algae Biomass Summit

Mayfield, Levine, Smith, McCormick and Horst on stage at the 2015 Algae Biomass Summit

In one of the main plenary sessions, Sapphire Energy CEO Jamie Levine lays it out as smoothly as Sinatra. “The most important question, as a business, venture-backed, expected to and needing to make returns and run as a business — what’s the product? Who’s the customer?”

He was asked to give advice to young entrepreneurs in the audience. He chuckled at himself. “You know we all talk our own book, and I’m not a scientist, I’m an MBA. But for me, it’s know your product, know your customer.”

Near to him, Algal Scientific CEO Geoff Horst was taking a similar line, though in his jeans-clad laid-backness he was more Dean Martin than Sinatra.

“Several years ago, here at ABS, I was one of those young entrepreneurs, thinking about algae, wondering if this was the right platform for us. I remember that on this stage Vinod Khosla said, “go in the opposite direction”. People always flock to the same target and they cause the price to drop.”

Also on the panel, Heliae’s corporate development chief, Len Smith agreed.

“Novelty counts, and it takes time,” he said. And Horst added, suddenly, “Above all, don’t run out of money!”

Follow the money or lack thereof

But run out of time, or money, or something else, many of them did. Aurora Algae ran out of dough not too long ago. Others have hightailed it out of the dream of algae and into the business of algae. Most of them are talking up omega-3s, or omega-6s, even omega-7s.

I found myself surprised that no-one is making omega-13s. That was the technology that saved the crew of the NSEA Protector in the motion picture Galaxy Quest when the Hollywood cast of a Star-Trek-like television show find themselves caught up in real spaceflight and a real Trek-like galaxy-threatening conflict.

When things become all too real and there feels like there’s no way out, they take a flyer on a technology they’re not quite sure of, and Tim Allen playing Jason Nesmith playing Captain Peter Quincy Taggert shouts, “Activate the Omega 13!” And all turns out well.

In our case here on the actual Planet Earth, things have become all too real and just about everywhere at the Algae Summit you can hear them shout:

“Activate the Omega-3!” (or “Activate the Omega-7!”, and in at least one attractive business case, “Activate the Thermoplastic!” although it sounds less zippy).

The Shift towards things that make money in the here and now

Sapphire is typical. They are Sapphire Energy for now, but the name is clearly going to have to change. They’re now aimed squarely at “commencing omega 3/7 oil sales in 2017 from our Columbus, New Mexico plant, and then omega-3 EPAs, which are sustainable and non-fish in origin.”

“For now, we are focused on health & nutrition,” said Levine, “and later as we move down the cost curve there are opportunities with high-value protein, aquaculture feeds, and animal feed. And we’ll keep an eye on fuels.”

Moderator Steve Mayfield commented positively on Sapphire’s evolution. “Why algae for nutrition? You shouldn’t do things just because you can, you should do things because they are unique or uniquely advantaged and useful. Algae has unique capabilities, it is programmable, edible and scalable. You can’t say that of any other platform in nutrition.”

Heliae’s Len Smith agreed, though for Heliae there was less confidence about hitting the cost curve improvements needed to compete with soymeal, or even fish meal, any time soon.

“Our foundational investors, “ said Smith, “the Mars family and the Salim Group, set a goal in pursuing this technology “to care for the earth in a forward looking manner.” Over the past year we’ve had to ask who we are and what we are trying to do and we have recommitted, after management changes and a significant restructuring, we’re entirely-re-focused on our original mission, to make affordable quality general nutrition at global scale.”

Then, Smith tossed out that rarest of elements in an industry conference setting. Real talk about a real problem.

“This sector has challenges, cultivation, contamination, expensive processing, nascent science, and regulatory roadblocks. We are behind yeast and e.coli by decades and thousands of years behind farming. But not everything is bleak. We believe our mixotrophic technology has real potential, we have exceeded our nameplate capacity repeatedly over the past year, and we are selling product to commercial customers, But we all still need radical breakthroughs, and to compete with the price of soy or of fishmeal there is a long way to go.”

Over on the end of the panel, Geoff Horst raised himself out his Dean Martinesque bemusement with it all to disagree about how hard it all really was.

Algal Scientific? Focused on fermentation, they are already in commercial production, producing AlgaMune.

“There have been significant reports of overuse of antibiotics and increasing levels of resistance to them,’ Horst said, “and its been reported that there have been as many as 23,000 deaths related to resistance to antibiotics, and and additional $20B-$30 billion in health care costs. To some extent, the spread of antibiotics has been related to growth promotion in the animal industries, and they’ve been banned in the EU for growth promotion, but not in the US. We’ve been targeting, with AlgaMune, an orally-taken product, made via algae fermentation, that tricks the system to think it is under attack and to increase the response, such as T Cells and B Cells. We chose algae because we thought we could use this platform to do better than yeast or e.coli, and we’re getting pretty good at fermentation now.”

At the center of the panel, Matrix Genetics CEO, Margaret McCormick, as close to a leader of the “GMO and proud of it” section of the algae community as you’re likely to find, then threw down the gauntlet after touting a recent success.

“We had a significant first this year, said McCormick, “We were the first to develop synthetic biology and genetic engineering  for spirulina, using programing to improve it. We think that our technology has significant applications in medical apps, including oral vaccines and other therapeutics, in the food and beverage industries, personal care, and animal feed, in addition to fuels. The easiest thing in spirulina to go after was the blue pigment, and there’s a significant market there and we have been able to produce with our engineered microorganism a higher purity and a brighter blue, and our work we thing will produce a 9X increase in the value to manufacturers.”

It’s really controversial and it rhymes with No, and Dough

“We are a technology industry,” she said. And then she got. Into. It.

Oh. My. The. Crowd. Fell. Into. A. Hush. The GMO thing.

“We have to stop kowtowing to fear-mongerers,” she said of the GMO debate. “Every time we step back to avoid a confrontation we step back for technology industries and science around the globe. We have to ask people, why are you going back to discredited studies that have been driven out of the scientific community? GM’s are regulated, we have to prove they are safe, which is more than you can say for a lot of products.”

She wasn’t having any of that “ we just make what our customers want” chat. None of that “if you want non-GMO, here’s the price and we’ll make it for you”.  None of that at all.

She took square aim at what some have noted as a big global game being played with definitions and regulations around the globe.“100% of French cheese is GMO,,” said McCormick. “it is not an issue for regulators because the Europeans redefined the threshold for presence of genetical modification in order to be “GMO” and re-set the threshold above that for French cheese. We need educational strategies and marketing strategies on the GMO issue. It’s something beyond what a small company can do, perhaps it’s something for the Algae Foundation, because it begins with K-12 and colleges embracing technology and science. If I hear another soccer mom on the dangers of GMOs, I don’t know what I’ll do. I mean, Whole Foods is laughing all the way to the bank. “Organic” designation is not is not a safety tool, it is a marketing tool.”

Mayfield chimed in. “I mean, it is almost a joke,” he said, “with 23,000 people dying because of rising antibiotic resistance, to use one example, and not a person worldwide has become demonstrably sick because of GMO, that we are even talking about this.”

Heliae corporate development head Len Smith took a practical line, noting that “We are going to need a better patent system, because the current system is simply not rewarding non-GMO organisms compared to GMO.”

Algal Scientific CEO Geoff Horst agreed with McCormick that definitions were slippery. Asked about how he skirts around drug regulations with his AlgaMune product, which competes with antibiotics, he noted that effective counsel is essential. “What we report ar the results of studies,” and we say that “such and such a study shows that with the use of AlgaMune you get this result.” We steer away from making durg claims, and from saying that AlgaMune is the direct cause.

But Horst was not taking much interest in the GMO debate, as a whole. “We don’t care about GMO at the end of the day. In fact, it’s a pain for us, actually, we have been sourcing non-GMO sugar out of China because you can hardly find it anywhere else. We’re a business, making a product for customers, and if the customer wants a non-GMO product, he can have one.”

Those dang customers and their pesky insistence on getting what they like

Which reminds one that we are in an era of business, and that for many the Dream of Algae has given away to something else. Give the customer what he or she wants, the way he wants it, when she wants it, at a price he or she can afford.

Do customers know what they want, really? As Henry Ford said, “I never asked my customers what they wanted because if I had, they would have told me they wanted a faster horse.”

Steve Jobs liked that one. Back in a different day, the time of iMacs and iPhones and the birth of the web and the end of the Cold War, and a feeling that technology was good and that the West was generally a better place to be, from the blue jeans all the way to the dot coms.

In about two years we’ll know a lot more, when the big dreamers like Joule and Algenol and LanzaTech have completed their Roads to Awesome and they are either really Awesome, or they aren’t.

If “not Awesome”, we may find three more companies talking up nutraceuticals. Myself, I like the Awesome option one heck of a lot more. And we’re in the final months away from knowing how Awesome it will be, the Dream of Algae. Or, er, blue-green algae.

Even as we celebrate and wish well all of those in the Business of Algae, who have found a new lease on life in activating the Omega-13.

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